Equities: US equity futures rose higher on Monday at the Asia open with a US government shutdown averted for now after a weekend deal. Softer PCE tone was offset by upward revisions in UoM sentiment and its price gauges. Many markets, including China, HK, India etc. remain closed today so volumes may remain thin, and focus will turn to PMIs later in the day.
Fixed income: Treasury yields steadied on Friday after a dip earlier on the PCE data but upward revisions to the Uni of Michigan survey consumer inflation expectations capping further upside in Treasuries. 2-year yields ended the day down 1.5bps while 10-year was down 0.4bps, and European yields also slipped after a jump higher earlier in the week.
FX: Dollar was muted on Friday but closed nearly unchanged with CAD leading declines but NZD in strong gains. USDCAD rose from lows of 1.3417 to 1.3585 as oil prices cooled. NZDUSD rose to 0.6049 amid improved risk sentiment and weaker yields, before easing to sub-0.60 handle. AUDUSD also touched the 0.65 handle and both RBA and RBNZ announce rate decisions this week. EURUSD back below 1.06 while USDJPY sees little respite, and continues to trade around 149.50, despite the lower Treasury yields.
Commodities: Crude oil prices resumed their ascent at the start of the week after slumping lower on Friday but having recorded the biggest quarterly advance since early 2022, and focus turns to Adipec summit in Abu Dhabi this week. Gold slumped by close to 4% last week, having broken below $1850 amid the relentless rise in long-end yields. Wheat plunged 6.4% on Friday to a three-year low at $5.415 after the USDA said domestic production was 4.5% higher than expected.
- US headline PCE met expectations as it rose to 3.5% YoY from July’s upwardly revised 3.4%, while the MoM print was higher at 0.4% (vs. 0.2% prior and 0.5% expected). Core PCE however cooled to 3.9% YoY as expected from 4.3% prior and 0.1% MoM from 0.2% prior and expected. Core services PCE ex-housing, Fed’s key measure, also cooled. Income and spending remained robust and there were also significant revisions to historical numbers, suggesting Q3 GDP growth in the US could remain strong and higher-for-longer could have more room to run.
- Euro-area inflation dropped to 4.3% YoY from 5.2% in August, coming in below expectations of 4.5%. Core inflation fell to 4.5% from 5.3%, also below consensus expectations of 4.8%. While base effects and energy contributions were at play, downside surprise also came in core categories, suggesting ECB could stay on hold.
- The US Congress passed a last-minute stop gap bill to keep the government running for 45 days. The deal, which doesn't include new Ukraine funding, keeps the lights on until November 17, buying time to negotiate a longer-term spending package but risks to speaker McCarthy’s job have increased.
- China’s PMIs were in expansion territory for September signalling preliminary signs of a bottoming out in the economy. Manufacturing PMI came in at 50.2 vs. 49.7 in August, while non-manufacturing was at 51.7 vs 51.0 in August. However, expansion in Caixin PMIs moderated with manufacturing at 50.6 from 51 in August and services at 50.2 from 51.8 suggesting that private businesses and exporters still remain under heavy pressure.
Macro events: EZ/UK/US Final Manufacturing PMIs (Sep), US ISM Manufacturing PMI (Sep), Chinese Market Holiday (Sep 29-Oct 8)
In the news:
- BAE Systems Wins £4 Billion UK Contract for Nuclear Submarines (Bloomberg)
- Tesla Revamps Model Y in China, Keeps Starting Price Unchanged (Bloomberg)
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